Planning Optimized: Building a Sustainable Competitive Advantage

29 June 2017

Achieving
an optimal planning state is a journey of continuous improvement. Customer
requirements change, corporate goals evolve and market dynamics shift quickly
and often. It is up to the supply chain organization to be prepared, flexible
and responsive to these changes through the right combination of talent,
processes and advanced technology.

Optimization,
algorithmic planning, artificial intelligence and machine learning are terms
used daily in conjunction with supply chain operations. But how do you
determine what might be beneficial to your company’s supply chain operations and
how do you start the journey to acquire and master the advanced supply chain
planning capabilities required to develop and sustain a competitive advantage?

This
article discusses the most important advanced planning capabilities and how
they can lead to a state of Planning Optimized across your supply chain.

Get on the Path to Planning Optimized

According
to SCM World, 51% of CEOs and management teams view the supply chain as a
critical part of the business. In times of uncertainty and growing supply chain
complexity, you must take advantage of every opportunity available. Lost sales,
excess inventory, inefficient operations or constrained cash flow can sink a
company.

Strategically-focused
organizations with advanced supply chain planning and optimization capabilities
are leading the move towards efficient and effective operations. These
companies have turned to their supply chains as a way to drive value and
business success through reduced costs and improved customer service. These
leaders are the definition of Planning Optimized.

Why Planning is Essential

Dwight
Eisenhower said, “In preparing for battle I’ve always found that plans are
useless, but planning is essential.” We can easily apply that wisdom to the
supply chain.

At
the highest level, Integrated Business Planning (IBP) is the newest weapon in
the battle to accelerate, direct and optimize business decisions. IBP unites
volumetric and financial information into one flexible planning and decision
support system for strategic and tactical planning horizons. It combines data
from sales, marketing, production, procurement, transportation and finance to
create a powerful decision centre for all stakeholders.

By
removing organizational and technology barriers and aligning and synchronizing
plans, an IBP strategy ensures your business plans are rooted in feasible
supply chain network capabilities, with resources and investments deployed
where they are most effective in achieving business goals.

According
to Aberdeen Group, companies with an IBP process in place are 2.92 times more
likely to evaluate and optimize inventory and service policy to maximize cash
flow and profitability than non-IBP users.

Closely
aligned with IBP is Sales and Operations Planning (S&OP). Once, the
objective of S&OP was to create a feasible plan. Today companies view sales
and operations planning as a means to execute corporate strategy. A successful
S&OP best practice process aligns an organization strategically to execute
tactically - empowering sales and operations planning teams to work from “one
plan” to save time and achieve clarity. With a comprehensive S&OP
technology solution in place, you can cut hours and days from your planning
process, streamline the planning cycle and complete multi-divisional analysis
in a fraction of the time.

Demand Optimization: The Starting Point

Of
all factors that impact business success over the long term, executives agree
that an accurate forecast is at the top of the list. Forecasting has a powerful
impact on an organization’s ability to cost-effectively satisfy customers and
manage resources. A forecast is not simply the projection of future business;
it is a request for product and resources that ultimately affects almost every
decision your company makes across sales, marketing, finance, manufacturing and
logistics.

Creating
demand plans by product, business and geography over multiple planning horizons
and in multiple units of measure, including both volumetric and financial,
creates a highly complex environment that dictates the need for optimized
demand planning. This complexity is then magnified by the growing need to
forecast for each stage in a product’s life cycle due to increasing product
portfolio changes.

The
benefits of an accurate forecast include significant improvements in revenue
through better in-stock availability, coupled with reduced costs by lowering
safety stock, inventory obsolescence, spot buys and expedited replenishments.
More importantly, lower forecast error leads to increased gross margin and
shareholder value through the combination of higher revenues and lower costs.

Demand
optimization capabilities include:

·Product
Life Cycle Planning - enables the forecasting of market demand for new product
introductions (NPI), short-life or seasonal products and end-of life products

·“Best-fit” Forecast Optimization—automatically
switch to the most effective technique to exploit both available historical
data and forward-looking market knowledge at each product life cycle stage

Once the Forecast is Right, Optimize
Inventory

Inventory
optimization is defined as having the right inventory in the right location to
meet established service targets while minimizing inventory investment and
operating within the constraints of the business. The best way to ensure an
optimal inventory strategy is to take a holistic view and consider all levels
and all inventories within the enterprise, rather than optimizing at each point
where inventory is stored. This holistic process, called Multi-Echelon
Inventory Optimization (MEIO), takes a broader view across the extended supply
chain including raw, work in process (WIP), and finished goods inventory
located in manufacturing, distribution centres, partner facilities or in
transit between facilities across multiple channels. Typically MEIO users are
twice as able to cost-effectively balance inventory and service as those that
look at a single or even two echelons in the network.

Inventory
optimization helps balance and align inventory across the supply chain,
optimally locating inventory buffers to provide the best customer service at
the lowest cost. Implementing an MEIO approach will often lead to a complete
shift in the Inventory Efficient Frontier (see Figure 3), allowing better
service levels at lower overall inventory investment. Companies that have
implemented MEIO have seen inventory reductions of 20-30% while maintaining or
improving customer service levels.

1.
Get executive sponsorship and provide team education: The holistic nature of
MEIO requires executive sponsorship to ensure all team members are on-board and
aligned to a new way of operating the business. Buy-in often requires knowledge
transfer and education on what MEIO entails and the expected benefits.

2.
Ensure inventory optimization supports all aspects of the planning process: Strategy,
tactics and execution planning must be supported, aligned and synchronized to
gain the full benefits of an inventory optimization effort.

3.
Make sure the inventory optimization technology is well understood and easy to
use: Inventory planners will not use a new solution unless they can verify the
results, and use the solution in an efficient and effective manner.

4.
Move quickly and implement in phases: Inventory optimization projects can
deliver results in weeks if you take an evolutionary approach. Don’t let
integration slow you down! Best-of-breed MEIO solutions can work alongside
transaction systems. Think in terms of multiple adjustments and shifts in your
inventory efficient frontier and walk before you run.

5.
Avoid the “One System Fallacy”: No single system will provide all
of your company’s business solution needs. Rigid assumptions on data
integration and usage of systems will almost always have to be revised to fully
realize the benefits of MEIO across your extended supply chain.

Supply Optimization: Know What to Make,
Optimize What and When to Buy

To
make the optimal use of critical resources and inventory while meeting customer
and forecasted demand requires end-to-end supply chain optimization. To
optimize supply planning you must consider all constraints, costs and
capacities across the extended supply chain simultaneously. When you factor in
all possible variables, supply planning enables you to profitably satisfy
market demand by dynamically sourcing materials, optimizing production and
manufacturing plans, reducing distribution costs and slashing lead times. In
addition, you are now able to proactively plan and optimally respond to supply
chain disruptions. Getting out in front of potential risks can make or break
your business and help you stay ahead of your competition. You must be able to
make crucial decisions quickly, realistically and optimally across the global
supply chain network.

Ask
yourself, do your predictive analytics and performance management/key
performance indicators (KPIs) reflect your company’s business goals? They
should. In addition, you need the ability to evaluate multiple supply plan
alternatives through numerical and graphical simulations, and “what-if” analysis
while incorporating both volumetric and financial information to enable the
evaluation of supply, production, transportation and storage alternatives in
the context of financial impacts.

Logistics Optimization: Now it’s a Matter of
Transportation

Transportation
management goes beyond shipping an item from point A to point B; it occupies a
key position between the functions of order processing, warehousing and finance
and can be a major new source of business benefit. Such a strategy should
incorporate proactive carrier management, optimized planning, improved
visibility, automated freight accounting and comprehensive control over
operations. Benefits including reduced total transportation costs (typically
40-60% of logistics expenditures) by up to 30%, improved productivity up to 80%
and reduced cycle times by as much as 50%.

An
essential element to achieve good results is the adoption of shipment planning
optimization. Shipment planning optimization combines orders into logical
groups based on chosen distribution strategies (aggregation, multi-stops,
multi-pickups, pooling, many-to-many), and selects the optimal mode and
carrier. Optimization promotes the best use of company resources (common
carriers, contract carriers, dedicated or private fleet) while ensuring
delivery requirements of orders are satisfied, equipment constraints are met
and transportation costs are minimized. Look for a solution that employs single
step optimization to simultaneously evaluate both load building and carrier
selection/assignment.

Companies
who leverage Planning Optimized evaluate all logical alternatives for grouping
shipments including considering business rules, consolidation parameters,
carrier rates, order characteristics, and requirements for delivery and pick-up
dates and times. Transit time, loading and unloading times, and equipment
resources are also factored in to make smart decisions regarding:

·Aggregating
orders with the same ship-from and ship-to address

·Building
inbound or outbound multi-pickup or multi-drop loads

·Pooled
consolidation and cross-docking

·Routing
via private, dedicated, contract, and common carriers

·Shipment
scheduling

Transportation
optimization considers thousands of options as it evaluates shipping orders
sent direct, through pools, via multi-stop trucks, or other carrier options. It
computes the economics of each option, and then selects the best alternative to
produce the shipping plan. Transportation optimization efforts can also
evaluate constraints and trade-offs between a private fleet and commercial
transportation options.

Retail Optimization

As
a brand owner or retailer, you know that retail optimization has a unique set
of industry-specific, omni-channel challenges. To start, consumers expect to
find the merchandise they want for the right price, in the right colour, style
and size at the point-of-purchase they prefer, 100% of the time. That’s a tall
order.

Optimizing
planning decisions require involving your people, processes and technology for
a new level of collaboration and flexibility. Merchandise planning, assortment,
allocation and replenishment activities must balance product and store plans,
run “what-if” scenarios, create demand-driven assortments, use virtual
warehousing to maximize stock availability, and more. The trick is to think in
terms of each channel integrating with other channels to optimize customer
service while minimizing your inventory investment and risk.

In
the retail industry, products may be sourced anywhere in the world, and delays
in the global supply chain can threaten product availability for short selling
seasons. Merchandise Planning must work hand-in-hand with Allocation to
optimize and automate operations from the chain level to item – store – week
level. This complexity means you cannot rely on spreadsheets or fragile legacy
systems.

·Model,
select and coordinate the right suppliers, production partners and distribution
resources

·Proactively
share and act upon issues like capacity constraints, scheduling limitations and
other critical issues that impact cycle time

Conclusion

Building
a strong foundation of optimized planning capabilities increases visibility,
collaboration and market response to an increasingly dynamic marketplace while
building a sustainable competitive advantage.

As
you optimize your planning strategy, keep these recommendations in mind:

·Build
a roadmap of supply chain optimization capabilities that can add value in your
organization

Disclaimer: The information and opinions expressed in this website and the Supply Chain Update newsletter in no way constitutes professional advice and does not necessarily reflect the views and opinions of the editor and staff of Supply Chain Update or Vicenda.